There are always different buckets to put your money in. Various categories of the market perform better than others at different times. But over enough time, they all average out. Airlines in the 1950s. Manufacturing in the 70s. Emerging markets in the 80s. Tech in the 90s. Banking in the 2000s. Housing and e-commerce in the 2010s. Each of these areas have been green pastures for investors at least a few times. And each of these areas have had their share of letdowns, too.
Which brings us to today. Technology stocks are having a moment (again) and people believe them to be a safe haven. Look no further than the recent IPO of cloud-based data management company Snowflake (NYSE:SNOW). Snowflake IPOd at $120 but before the stock was even available to retail investors, the price had shot up past $250 the day it was listed. This may be for a good reason as investors are paying today for tomorrow’s returns, but it’s still difficult to justify without context.
There’s a lot of exuberance in the tech sector right now in general. Tech stocks outperformed over the last few years, outperformed during the March 2020 selloff due to COVID-19, and subsequently outperformed in the rally following. It’s easy to see why; they are believed to be a hedge against another wave of shutdowns as well as a bet on the future state of the world.
But you can’t just blindly throw your money into every IPO like it’s 1999 all over again.
Whether or not these software behemoths and snappy upstarts will continue to outperform is up for debate and no one knows what the future holds. Diversification is your friend for this reason. But I also like to invest by looking for trends. Long-term trends plus TAM (Total Addressable Market) are a good indicator of where demand, and therefore money, is likely to flow.
Invest in trends, not just stocks.
Regardless of what happens, trends don’t lie. Some obvious trends I like are automation, connectivity, and mobility. Global smartphone adoption, rising discretionary income in the developing world and greater access to broadband internet are all spurring these areas to new heights.
Then there’s machine learning (a subset of artificial intelligence). Machine learning detects patterns, analyzes trends, and predicts outcomes really well. I mean really, really, well. Way better than the human mind. And to be clear, the human mind is incredibly good at this, so it’s actually very impressive.
In fact, human brains are needed to help machines collect enough data to study in the first place. Ever think about what you are doing as you fill out a CAPTCHA or click on crossroads in a photo when you are logging in to a website? That’s a tech company outsourcing the training of their AI model to humans. Amazon’s Mechanical Turk will even pay you a few pennies to do these simple tasks over and over again (called “Human Intelligence Tasks”). Most people have no idea about this rapid technological undercurrent.
It’s actually taken humans hundreds of thousands of years to develop this single tool (which is of course many tools layered upon one another with origins spanning from the discovery of electricity all the way to greater understanding of how neural pathways work in the brain). And machine learning can also detect patterns automatically through its own experience in whatever course its set upon. It literally improves itself.
That’s great and all but how does this help one invest?
As our lives become more connected, automated and mobile, AI will prove instrumental to increasing the value a company can provide to their end users by way of accessing, learning from, and improving upon big data sets. It’s not just TikTok using AI to improve the user experience either.
Let’s look at the following 3 industries and examples of where these trends might take us: Healthcare, Education, and Transportation.
These 3 areas all share common issues that will be taken advantage of by enterprising startups over the next decade. Those issues are:
- Fragmentation and varying levels of expertise
- The need for highly personalized experiences
- Extensive regulations and, therefore, inefficiencies
How might companies with AI embedded into their services solve these issues and use increased connectivity to make big leaps forward in these sectors?
Smart glasses (think Microsoft’s Hololens or Google Glass), real-time biometric monitors (think Apple Watches and FitBits), predictive health analytics (think Alphabet’s Deepmind), and more access to incomprehensibly large sets of data will help your doctor draw upon the expertise of every other doctor in the world.
Using the computational power of server farms all around the globe, they’ll be able to give you the most accurate diagnosis and most likely form of treatment completely bespoke to your genes, lifestyle, and current ailment.
They’ll likely be able to do this remotely, too, thanks to the breakthrough of telehealth sped up by COVID-19. Walled gardens of private health data will be broken down, anonymized, and available for research. Add an aging populace and you’ve got a recipe for big opportunity.
Today, one doctor may be able to see hundreds or even a thousand patients in a year. But in a few years, one patient may have access to the expertise of a hundred thousand doctors every minute of every day.
As if our education system didn’t have enough difficulties (low teacher salaries, low government spending, disparate technology, and the list goes on) we were forced to learn how to do it all remotely… overnight when the pandemic hit.
That’s not to say we will be doing it remotely from here on out. There are a ton of benefits to physically being in a classroom: learning social skills, the ability of the teacher to see who may be falling behind, and general attention are higher in shared spaces. We will almost certainly end up with a hybrid approach for learning.
But we will also have some big shifts that are hard to see from within the eye of the hurricane. A tablet or Chromebook-type solution will need to be affordable for each student, the lessening of the stigma associated with online degrees, and the dissemination of knowledge for free are all moving forward at breakneck speeds.
AI, embedded in our devices, may be able to revolutionize how we learn. Optic scanners are able to scan your eyes as you read, pinpointing exactly where and for how long you paused on a difficult word, or even registering whether or not your pupils dilated in a way that may indicate excitement at connecting two ideas for the first time.
Insights into how often a learner goes inactive online, what time of day they are most productive and a hyper awareness of reading comprehension may be able to tell teachers which young students are most at risk of falling behind months before the teacher may have caught it through mere human observation in an overcrowded classroom.
The inequality in education across income levels may also be evened out. Learning can happen more remotely, from a younger age, with a higher quality of content and at a cheaper price.
Artificial intelligence may soon level the playing field and change our approach to education.
The taxi industry was highly regulated and cost prohibitive to compete in. Owning a car in the city was impossible or impractical for many. Enter ride-hailing apps from Uber and Lyft.
Traffic jams have been causing delays (and lowering productivity) across big cities for a hundred years. Enter real-time GPS from Waze and Google Maps.
The average American will spend 6,000 hours just driving to work in their lifetime. Enter self-driving technology from Tesla, Yandex and Waymo.
But these advancements need an incredible amount of data on miles driven to support a safe and usable autonomous framework. Machine learning software will sift through those miles, understanding how humans reacted to uncountable situations and hazards, in order to recreate your drive to work.
Companies with deep pockets and proven track records are working on the solutions:
“Tapping into decades-long experience in high-performance computing, imaging, and AI, NVIDIA has built a software-defined, end-to-end platform for the transportation industry that enables continuous improvement and continuous deployment through over the air updates. It delivers everything needed to develop autonomous vehicles at scale.”– NVIDIA DRIVE™ solutions
Some of these trends will displace huge swaths of workers. But accountants didn’t disappear the day Microsoft Excel was invented, they were simply freed up to work on higher level projects and more complex financial analysis. It was a net positive. By pulling the right mix of policy, technology, and cultural levers, I believe AI and machine learning will help move us towards a more equal, more profitable, and let’s be honest, more fun world.
There are other trends just forming right now that we have no idea are going to turn into tidal waves. It’s tough to pick and choose stocks at the best of time. And until we are there, we won’t know what the future holds. But companies taking advantage of these trends will be in demand for decades to come. Place your bets wisely.
Disclaimer: I am not an investment professional and these are my opinions. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular investment is suitable for any specific person.
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